The Ring Of Fire: Of Pirates, Popcorn Time And Dynamic Pricing

Editor’s note:Razmig Hovaghimian is co-founder and CEO of Viki, Inc., a global TV streaming site with crowdsourced subtitles. He’s also Global Head of Video for Rakuten and former SVP of NBC Universal’s international division. This article reflects his opinions and does not necessarily reflect the opinions of either Viki or Rakuten.

At 36,007 feet up in the air, somewhere between Alaska and Russia, with the Aleutian Islands someplace below us, my child and I are sharing a blissful moment.

My one-year-old is sleeping peacefully and I finally have an opportunity to catch up on Game of Thrones. I’m four episodes behind, and I need to see what happened in that trial by combat. I would pay dearly for each episode during this rare window of time, high above the Aleutians, but that’s not even an option. It should be, though.

It’s high time to bridge the gap between the needs of passionate fans and business. It’s not a zero-sum problem, so:

Dear Studio Heads:

I know you’re not fans of disrupting your tried and tested distribution model: international geo-blocks and distribution holdback windows for releasing new TV shows and movies. I don’t blame you. After all, a whole industry was built on carefully parsing out content rights.

But technology and passionate fandom can be punishing, and it has led to an MPAA reported $20+ billion a year piracy problem for the top U.S. studios alone. Twenty-five percent of all Internet traffic now goes to piracy — 5X growth in the last five years — and that pace of growth is picking up fast.

You’ve spent hundreds of millions of dollars on ad campaigns teasing out your latest releases, and you’ve left us fans needing our fix. Your stuff is good! But instead of embracing pirates as fans, some of you turn to intimidation, threats of 10 years in jail, crackdowns, raids, eclipse attacks, hijacking browsers of paying customers, and on and on. Fun stuff. Pretty much all of your content is available online within a five-minute search anyway. Before bringing out the big guns, why not at least give fans the option to pay? The idea is simple: Think Popcorn Time, with dynamic pricing.

What if we give fans a choice to access what they want, when, where, and how they want it, but pay what you want to charge them?

I won’t get into how Apple nailed it or the headway that many other startups in the space are making, but it’s clear by now that access means a drop in piracy, and net growth in sales. Let’s briefly look at the possible macro implications of working with fans.

An NBC Universal-funded study with NetNames discovered that 432 million people worldwide “explicitly sought” copyright infringing content online. This was in January 2013, when the Internet population was a third smaller than it is today. Adjust for Internet adoption and about 10 percent growth in piracy every year, and we could be looking at 750 million fans a month. This doesn’t include those who searched for illegal content but didn’t go through with it. 750 million. And growing. That’s a third of the global online population. You don’t even have to find them. They find you. That’s the beauty of treating “pirates” as fans: untapped and concentrated demand. Beautiful.

Now assume you convert 5 percent of them to pay users (some would argue that the number is closer to 50 percent). Besides the NBCU study, a great deal of data shows that pirates would consider paying if they had a reasonably priced option, Australia aside as of now—don’t ask. That’s 37.5 million people. We’re talking about the size of Netflix here. Now imagine if each of them generates a $5 ARPU (some can pay $1, and some $100) per month, and the revenues go into the billions. Even at 1 percent conversion, it’s huge. Geo-block and leave out the 15 percent of them that are in the U.S., and that’s still huge; and additive, where you don’t trade volume for margin.

From Pirates to Gladly Paying Fans

Popcorn Time is a manifestation of this massive demand, for what people really want. The platform is clean-cut, with one-click streaming of top shows. The kicker is that all the effort is crowdsourced for the fans, by the fans. You don’t have to search for torrent files or figure out how to play them anymore. It’s simpler than Netflix or HBO Go even. Pirates are even disrupting themselves.

Why not use a Popcorn Time-like technology and add dynamic pricing to create a market-clearing price for your content? At a product level, think of Popcorn Time, but with variable prices and holdback windows that you get to control. Fans just pay for what they want per video stream. No ads, no subscriptions, and you can block any country you want, especially where theatre chains and cable companies still take you hostage. As an out, you can also choose to leave out some of your flagship titles (or recent seasons) until the economics make sense.

If you want to be adventurous, you can even start with content that is already illegally available online and just gate it.

The idea is neither a first nor is it novel. It’s just the right time. Dynamic pricing isn’t that complex, either. Take a page out of the e-commerce playbook and adjust for dozens of variables, from content recency, to country of viewership, to competitor pricing, to social chatter, to the number of torrents seeded or leeched, to the quality of the original video file, among many others. You can also track search terms and adjust prices in anticipation, or even involve the search giants to seed pay users and give them a cut. Both sides would win. You’d need kick-ass data scientists, and I wouldn’t be surprised if you get a world-class team of volunteers lined up to work on it.

Would some fans pay $100 for a season of Game Of Thrones in a country where HBO is not available? Maybe. Would fans pay $50 for a simulcast of a new release if they’re in Asia? Likely. How about $10 for a six-month-old title still not on Netflix? Yeah, for sure. Or two dollars in India? Yes, if not more.

Here’s a fairly fresh example for just one show: BBC’s Happy Valley was the No. 1 global trending topic on Twitter recently, yet one couldn’t see it outside of the UK. Six million people watched it in a week. That’s 10 percent of the UK population. How would it have done had it been available with dynamic pricing, even after the UK broadcast ended, at $30 for the series of six episodes? Probably way more than they will make from the DVD (hint) sales that will be available this week.

Don’t Let Fear Be Your Zugzwang

In order for it to work, when and where you choose to make the content available, you have to go all in — with your latest and greatest shows, starting at the head of the curve. Make some of your long tail shows, which you’re not monetizing anyway, available for free even, so you can up-sell fans on your newer shows. When you fine-tune this model, no part of it would be net cannibalizing to your existing revenue base. Let technology help you reduce theft, reach new fans, and in the process, increase the size of the revenue pie for all involved in making your great content.

There are convenient reasons to say no, from the fear of setting a precedent of negotiating with pirates, to “breaking” what’s working, or creating price transparency. You may even view this as your Zugzwang (in chess terms, as I know you play the long game); you’d rather pass when it’s your turn, than make a move that would put you at a disadvantage. Coming from both the studio and technology sides, let alone as a fan, I worry that the only wrong move here is not moving at all. You are fighting your adoring fans, especially fans that on average pay far more for your content than any other group. You turn them off, and that could be catastrophic.

When we spoke about this in L.A. last month, Mr. Head of Antipiracy at “Studio X”, I felt we agreed, at least privately, that with calculated availability, not only can you eat into piracy, but also unlock significant revenues in the process. You know who you are.

Take the leap, man. Open this up. It may take just one “yes” to start. Okay, don’t open up U.S. rights, and don’t even shrink the international distribution windows for your core markets, but at least give us the rest of the world. I don’t even mind waiting weeks for what I love. Studios and fans *are* actually on the same side. We’ve discussed this for years, and I’ve seen your cards. It’s time. This “winter” is coming.

To the rest of us: keep embracing the madness and connecting the dots.

Signing out from the northernmost part of the Pacific Ring of Fire, where the Aleutians, Silicon Valley and Hollywood connect.